TAX TIPS FOR LESSORS OF MOTOR VEHICLES CONDUCTING …

TAX TIPS FOR

LESSORS OF MOTOR VEHICLES

CONDUCTING BUSINESS IN DELAWARE

Things You Should Know

Definitions

30 Del. C., Ch. 43

A lessor of tangible personal property is a person who grants to a lessee the

right to use property for a specified period. A lease may be written or oral

and any agreement which purports to be a sale but which in substance is a lease

shall be considered a lease. Leases of tangible personal property are subject

to a use/lease tax at the rate of 1.920%

which is imposed on the lessee and

collected and remitted by the lessor. Additionally every lessor must obtain a

business license and pay a tax based on gross receipts.

Gross Receipts

Consideration for services rendered includes cash, checks, credit cards, gift

certificates, travelers checks, money orders, barter, trade-ins, manufacturer's

coupons and rebates, and any other consideration of any kind.

Gross Receipts May Not be Reduced By:

? Cost of material and/or labor

? Interest, discount or delivery costs

? State or Federal taxes

License and Gross Receipts Requirements

A lessor of tangible personal property is required to obtain a business license

-- $75 for the first location and $25 for each additional location -- which must

be renewed annually on or before December 31st of each year.

Additionally, a

gross receipts tax is levied at the rate of .288% (.00288) on the amount of rental

income received from the leased property. The first $240,000 of rents received

per quarter are exempt from the gross receipts tax. Specific instructions will

be sent to new registrants with your personalized gross receipts coupon book.

You will receive two coupon books, one to report the gross receipts tax and one

to remit the tax collected from the lessee.

To register with the Division of

Revenue and obtain a business license, complete a Combined Registration

Application, available on the Internet, and mail to the Division of Revenue with

the appropriate fee.

Important Information for Lessors of Motor Vehicles

Beginning January 1, 1998, House Bill No. 400 requires that the lessee use tax

and lessor license tax on leases of motor vehicles be reported separately from

the leases of other tangible personal property.

The total receipts received

from leasing motor vehicles must be segregated from the receipts received on

leases of other tangible personal property.

Tax Rates and Exclusions

Lessor of Tangible Personal Property

Sample Calculation

Tax Rate

.00288

Rental Receipts

Less Exclusion

Taxable Rental Receipts

Tax Rate

Tax

Motor Vehicle Rental

Tax Rate

Total Tax Due

Quarterly

Exclusion

$240,000

$273,000

240,000

$ 33,000

x.00288

$

95

$ 50,000

x .00288

$

144

$

239

Lessee of Tangible Personal Property .01920

Rents Other Than Motor Vehicles $273,000 x .0192 =

Rents from Motor Vehicles

$ 50,000 x .0192 =

Amount Due

(Note:

$ 5,242

960

$ 6,202

Delaware requires that tax due be rounded-off to the nearest dollar amount.)

Due Dates of Returns

New licensees will file on a quarterly basis through their first calendar year.

The Division of Revenue will then perform a 'lookback' procedure and determine

if the filing frequency should be changed.

Quarterly Filers

last day of the first month after the end of the calendar quarter.

Taxable and Exempt Leases

Section 4302 of Title 30 of the Delaware Code imposes a 1.92 percent (0.0192)

use tax on leases of tangible personal property where such property is used

within Delaware. The tax is imposed on the lessee and collected and remitted by

the lessor. Unless it can be shown to the contrary, ALL amounts received under

rental agreements including early termination charges are subject to the use

tax, except as indicated below.

If the lessee/user exercises the option to

purchase the item being leased, then the amount received from the 'Final Option

Price Payment' is to be treated as a payment of the purchase price and is

subject to taxation under the provisions of a wholesaler/retailer. Separately

stated charges for such items as insurance, gasoline and delivery charges are

not subject to the lease tax.

However, these charges may be subject to other

license fees.

Taxable leases also include by way of example and not by

limitation, telephones (fixed and portable), paging devices, video cassettes,

canned software, uniform rentals and agricultural equipment. Note: Leases of

agricultural production equipment are exempt effective 1/1/99.

The following leases of tangible personal property are exempt from the use tax:

?

?

?

Household Furniture

Household Fixtures

Household Furnishings

All items leased to:

The Federal Government

This State and its Agencies

?

Hospital/Medical Equipment, Aids and Devices

leased to ill, injured or handicapped persons.

Political Subdivisions of this State

State and Local Public Schools

It should be noted that while the leases of the above items are not subject to

collection of the use tax, the receipts received by the lessor for the lease of

such items are subject to the lessor gross receipts tax.

Gross Receipts Tax Exemption

Effective January 1, 1997, House Bill No. 678, exempts from business license

gross receipts tax transactions between small, closely held firms. To qualify,

the subject firms must be 80% owned by the same five or fewer shareholders, or

100% owned by the same family.

Common Ownership/Direction

Businesses which operate their separate branches by the use of separate

operating corporations are only entitled to one monthly or quarterly exclusion

for the enterprise to the extent that the corporations have common ownership or

common direction and control.

Caution Concerning Multiple Exclusions

Nearly all licensees are permitted to reduce their monthly or quarterly gross

receipts by certain specific exclusions in determining their taxable gross

receipts. The Delaware Code limits the number of allowable exclusions for each

general business activity. A taxpayer conducting a business activity for which

an exclusion is provided is entitled to ONLY ONE monthly or quarterly exclusion

regardless of the number of locations at which such activity is conducted. For

example, a taxpayer who operates multiple location or stores should aggregate

the receipts from all goods leased at all locations and subtract only one

quarterly exclusion. Separate licenses are required and separate exclusions are

permitted if a taxpayer conducts more than one ACTIVITY, such as leasing and

selling at retail.

Regulatory and Local Requirements

The Business License Issued by the Division of Revenue is not a regulatory

license and the issuance of such license does not attest to the qualifications

of the applicant to perform the activity described on such license. Many local

jurisdictions have requirements for a business license and may have restrictions

concerning the locations of conducting the referenced business activity. Please

check with the local government office in the town, city or county in which you

will conduct your business.

The State of Delaware also has a Division of Professional Regulations. Many

occupations and some types of equipment have regulatory requirements. Please

contact the Division of Professional Regulation for more information.

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General

If you have any questions, please contact one of the following offices

Wilmington

Dover

Georgetown

Division of Revenue

Carvel State Office Building

820 North French Street

Wilmington DE

19801

Division of Revenue

Thomas Collins Building

540 South DuPont Highway

Suite 2

Dover DE

19901

Division of Revenue

Suite 2

422 North DuPont Highway

Georgetown DE

19947

(302) 577-8205

(302) 744-1085

(302) 856-5358

or by e-mail at: thomas.eoppolo@state.de.us (302) 577-8261

File Gross Receipts Online:

grossreceiptsfiling.

or

Print an interactive Gross Receipts Coupon:

revenue.

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